Most business owners want to trust the people they work with. Employees, managers, and other team members are often essential to keeping a business running.
But businesses can also face financial losses caused by theft, fraud, or misuse of company property and funds.
Employee theft doesn’t always involve someone taking cash from a register. It can include unauthorized purchases, stolen inventory, misuse of company credit cards, falsified expenses, manipulation of financial records, or unauthorized transfers of money.
The good news is that businesses can take practical steps to reduce these risks.
Understand Where Your Business Is Vulnerable
Every business is different.
A retail store may be concerned about inventory and cash. A professional services firm may have greater exposure to financial accounts, electronic payments, and sensitive information.
Start by identifying who has access to:
- Business bank accounts
- Credit cards
- Cash
- Inventory
- Payroll systems
- Accounting software
- Customer information
- Company equipment
- Online payment systems
The more access someone has, the more important it becomes to have appropriate controls in place.
Separate Financial Responsibilities
One useful way to reduce fraud risk is to avoid giving one person complete control over a financial transaction.
For example, whenever practical, different people can be responsible for approving payments, processing transactions, and reconciling accounts.
In a very small business, separating responsibilities may not always be possible. But business owners can still create additional oversight by regularly reviewing bank statements, credit card activity, payroll reports, and other financial records themselves.
Even simple oversight can make unauthorized activity more difficult to hide.
Control Access to Business Accounts
Employees should generally only have access to the systems and information they need to perform their jobs.
This can include:
- Banking platforms
- Accounting software
- Credit card accounts
- Payment processors
- Payroll systems
- Inventory systems
- Company email
- Cloud storage
Use individual logins rather than shared passwords whenever possible.
When an employee leaves the company or changes roles, review and update their access promptly.
Monitor Business Transactions
Regularly reviewing financial activity can help identify unusual transactions before they become larger problems.
Business owners should consider monitoring:
- Bank statements
- Credit card transactions
- Vendor payments
- Refunds
- Expense reports
- Payroll
- Inventory records
- Electronic transfers
Look for transactions that don’t make sense or don’t match normal business activity.
An unexpected charge doesn’t necessarily mean fraud, but investigating unusual activity promptly can help uncover problems earlier.
Keep Good Inventory Records
For businesses that sell products or maintain physical inventory, inventory controls are particularly important.
Regular inventory counts can help identify discrepancies between what the business should have and what it actually has.
Businesses can also limit access to storage areas, maintain records of inventory movements, and investigate unexplained shortages.
Small discrepancies can sometimes reveal larger problems.
Be Careful With Company Credit Cards
Company credit cards are convenient, but they can also create opportunities for unauthorized spending.
Establish clear rules about:
- Who can use company cards
- What purchases are authorized
- Spending limits
- Required receipts
- Approval procedures
- Reviewing monthly statements
Employees should understand that company funds are only to be used for legitimate business purposes.
Use Strong Passwords and Multi-Factor Authentication
Fraud isn’t always committed by someone physically inside the business.
Cybercriminals can potentially gain access to business accounts through stolen passwords, phishing attacks, or other methods.
Protect important financial and business accounts with strong, unique passwords and multi-factor authentication whenever available.
Employees should also receive basic training on recognizing suspicious emails, payment requests, and other potential scams.
Create Clear Policies
Employees should know what is expected of them.
Written policies can address issues such as:
- Use of company property
- Company credit cards
- Expense reimbursement
- Purchasing
- Handling cash
- Inventory access
- Financial approvals
- Confidential information
Clear policies don’t guarantee that misconduct won’t occur, but they can establish expectations and provide a framework for responding when something goes wrong.
Don’t Ignore Small Warning Signs
Business owners sometimes overlook small discrepancies because they don’t seem important.
A missing receipt, unexplained inventory shortage, unusual expense, or irregular accounting entry may have an innocent explanation.
But recurring discrepancies deserve attention.
Investigating potential problems early can help prevent a small issue from becoming a significant financial loss.
Insurance Can Be Part of Your Risk Management Plan
Prevention is important, but businesses should also consider how they would respond to a financial loss caused by theft or fraud.
Depending on the business and policy, Crime Insurance or other specialized coverage may provide protection for certain types of losses resulting from employee theft, fraud, or other covered criminal activity.
Coverage varies significantly between policies, so business owners should understand what is and isn’t covered rather than assuming a standard business policy automatically protects against every type of theft or fraud.
Trust and Oversight Can Work Together
Having financial controls doesn’t mean a business owner doesn’t trust their employees.
Good controls protect everyone.
They establish clear procedures, reduce opportunities for mistakes or misconduct, and make it easier to identify problems when they occur.
For small businesses especially, a few simple practices can make a meaningful difference:
- Limit access to financial systems.
- Review transactions regularly.
- Separate financial responsibilities when possible.
- Keep accurate records.
- Remove system access promptly when employees leave.
- Train employees about fraud and cybersecurity.
- Review insurance coverage for potential financial losses.
No risk-management strategy can eliminate every possibility of theft or fraud.
But identifying vulnerabilities and putting reasonable safeguards in place can help protect your business and the people who depend on it.
